ECB Flags Stablecoin Risks For Banks, Monetary Policy Amid CLARITY Act Debate

The European Central Bank (ECB) has warned banks and monetary policy stakeholders about the risks of stablecoins. ECB’s statement comes as debate on the CLARITY Act is gaining momentum.

What Does ECB Have To Say About Stablecoins?

Speaking at the Bank of Korea International Conference on Central Banks and the Future of Money, ECB Executive Board member Isabel Schnabel addressed stablecoins. She stated that while the benefits of digital payment instruments are apparent, there are several risks to consider.

ECB’s Schnabel added that central banks and regulators should be alert to the risks associated with stablecoins. She especially spotlighted the case where stablecoins are used as payment instruments.

Widespread adoption of stablecoins could lead to “a new wave of bank disintermediation,” according to Schnabel.

She added that the traditional bank funding base would become more volatile and vulnerable if households and businesses moved funds from traditional bank deposits into stablecoins. It could thereby increase their funding requirements from wholesale sources, which are more volatile and sensitive.

The ECB official also noted the threat of stablecoin runs in times of financial stress. If there is less confidence in the assets backing a stablecoin, then they’re “subject to the risk of runs,” Schnabel said.

She added that large demand for redemption may lead to selling the bond reserves. Moreover, she cautioned it may cause spillovers in the government bond market and the fixed income market in general.

The ECB also shared worries about the emergence of dollar-backed stablecoins. Most of the top stablecoins are still pegged to the U.S. dollar. Thus, a surge in their usage could further enhance the US dollar’s international dominance, said Schnabel. This point aligns with Fed Governor Christopher Waller’s recent insights on stablecoins.

Stablecoins Take Center Stage In U.S. Lawmaking Decisions

The ECB’s remarks come as members of the U.S. Congress are expected to hold a hearing on the CLARITY Act. Still, the bill has been opposed by some in the banking industry, including JPMorgan CEO Jamie Dimon.

On Mornings with Maria, Dimon noted that banks would still oppose the most recent version of the CLARITY Act as it moves forward with the Senate Banking Committee. “We will fight it; if we lose, we will live,” Dimon said.

If the companies were acting in the same manner as banks, then they should be subject to the same rules, the JPMorgan chief said. He is contending the stablecoin yield provisions in the bill. He also commented that the proposed framework contained “inadequate” anti-money laundering (AML) and Bank Secrecy Act (BSA) measures.

The CLARITY Act debate coincides with President Donald Trump’s call to advance with crypto legislation. He vowed to create a “future-proof” regulatory regime for the industry.

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